Report reveals the escalating costs of mining in a “wake-up” call for Australia

The burgeoning costs of mining are threatening Australia’s viability as a producer of coal, iron ore and base metals, according to a report released yesterday by the Minerals Council of Australia.

The report was prepared by Port Jackson Partners and found although the mining boom was not over yet its dynamics have changed.

More than half of Australia’s mines for thermal and coking coal, copper and nickel now have costs above global averages, which puts at risk $121 billion per year in revenues to the resources sector.

The MCA report found Australian iron ore projects are 30% more expensive than the global average, while thermal coal projects are 66% more expensive.

Mitch Hooke, chief executive of the MCA, said that over recent years the council has being warning of “structural deficits” in our economy that have been masked by historically high terms of trade.

Hooke warns as the value drivers of the mining boom shift from price-led to volume-led growth, Australia is becoming “increasingly vulnerable” to competition from resource-rich emerging economies.
“Our country’s attractiveness as a place to do business in a highly globalised industry is slipping due to a combination of rising costs, declining productivity and a deteriorating sovereign risk reputation,” he says.

“With commodity prices having fallen from peak levels, complacency and backsliding on economic reform pose a real threat to the minerals sector and to the wider economy.”

Hooke describes the report as “a wake-up call” for those who think Australia’s mining and minerals processing sector is so resilient it will thrive regardless of the prevailing economic and policy climate.

He warns of Australia’s “deteriorating reputation” as a place to do business and says the report demonstrates that Australia is losing global market share to rapidly emerging resource-rich economies.

The MCA report sets out a road map for reform which it argues must begin with the recognition of Australia’s eroding structural competitiveness, referred to as Australia’s “burning platform”.

The report calls for the mobilisation of all available skilled labour, including importing critical skills, to stop labour cost super-inflation.

It wants to ensure “unfettered access” to globally competitive suppliers and calls for an increase in national savings to ease exchange rate pressures.
From an industrial relations perspective the MCA report wants to “reorient” the workplace relations framework towards ‘win-win’ deals that reward more output with more pay.

“The prize for getting the framework for minerals resource development right is immense, but it will take hard work from both industry and government to secure the economic opportunity that is currently at risk,” says Hooke.

The report follows the announcements by BHP Billiton, Mitsubishi Alliance and Xstrata Coal last week of 900 job cuts partly because of rising costs.